Jul 18, 2017 News
The International Monetary Fund (IMF), in its 2017 report on Guyana’s economy said that the establishment of a Sovereign Wealth Fund (SWF) is important for the building of confidence in the public and in financial markets.
The body noted that the authorities in Guyana have made it a priority to put in place a credible framework for the management of future hydrocarbon revenues. But this framework is yet to be finalized.
IMF said that the framework will contribute toward resolving potential uncertainties regarding how oil revenues would be spent and how they could affect macroeconomic developments. “Once the draft SWF law, and the resource management framework embodied in it, are finalized, it will contribute to building confidence in the general public and financial markets”
IMF said that in order to ensure that the operation of the SWF is consistent with the macro-fiscal objectives, the SWF law should be linked to a fiscal responsibility law. Further, the international body said that all hydrocarbon revenues and any public spending related to these revenues should be channeled through the state budget.
The report noted, “As the SWF investment activities will have direct domestic macroeconomic implications, these activities can be usefully coordinated with relevant authorities such as the owner (Ministry of Finance) and the Bank of Guyana through regular meetings (e.g., quarterly). That can help ensure consistency with the overall macroeconomic policies.”
IMF also said that the building up of assets in a SWF and its investment strategy should be seen in the broader context of Sovereign Asset and Liability Management (SALM) framework. Related aspect for indebted resource-rich countries is striking the right balance between debt repayments and the building up of SWF assets for stabilization purposes. Hydrocarbon revenues can be used to reduce the stock of government foreign debt to sustainable levels. The exact target for debt reduction would be guided by the FRL. The appropriate level of the stabilization fund should be evaluated in a SALM framework; taking account of interest rate levels and the size of the public debt.”
A SWF is a government-owned investment fund. It has been set up by many countries with oil wealth, and there are several models to choose from.
While the policy to govern the establishment of SWF was to be delivered since last year, the public continues to keep watch for when government will actually make good on its promise.
From all indications, the holdup is not with the Ministry of Natural Resources. Kaieteur News understands that the Bill is in the hands of Minister of Finance, Winston Jordan, and has been with him for some time now.
Minister of Natural Resources, Raphael Trotman, spoke confidently in the National Assembly that the policy would have been delivered to the House in 2016 for discussion and debate. This was as he made his contributions to the 2017 Budget debate.
Last year ended without the policy being taken to the House, and to make matters worse, the second quarter of 2017 is finished and the policy is still to reach Cabinet where it must go before reaching the House.
Trotman has told Kaieteur News that the draft policy was completed by his Ministry and is now with the Ministry of Finance. He refused to be specific as to how long the draft has been with Minister Jordan, but noted that his (Trotman’s) Ministry met its deadline.
Sources at the Ministry of Finance confirmed that the document has been there since January.
Trotman told Kaieteur News that he is confident about the quality of the draft policy, which benefitted from the expertise of the Commonwealth Secretariat, the Guyana Geology and Mines Commission, the Private Sector and the very Ministry that is now doing the review.
Trotman said that when the Ministry of Finance is finished with its review, the Bill will go to Cabinet for approval, then for public consultation, before reaching the National Assembly.
“There is no intention to rush the Bill. We are some years away from production, so there will be consultation, but the point is we have a Bill which the Ministry of Finance is amending,” said Trotman.
In an address to the National Assembly, Trotman had said that it is important that the extractive industries that fuel Guyana’s growth today “also provide for our children tomorrow.”
He told the House that the Sovereign Wealth Fund will enable the government to “protect the economy from the volatile nature of natural resource revenues, help grow and modernize the sustainable non-extractive sectors of the economy, and further enhance the capacity of our people”.
Trotman outlined the considerations for the three sub-funds within the Sovereign Wealth Fund – the Stabilization Fund, Infrastructure and Social Development Fund and Citizens Participation Fund.
He said that the government has already begun seeking advice and guidance on developing such a Fund from the School of Public Policy – University of Calgary and the Commonwealth Secretariat, both of which are equipped with strong expertise on extractive resource governance.
Trotman told the House that the creation of a long overdue sovereign wealth fund will demonstrate to Guyanese and the world at large that hydrocarbon development, and by extension all other extractive industries, can be catalysts for a green economy
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